What is a PBC?
What is a public benefit corporation (aka. “PBC”) and should I be incorporating as a PBC rather than a regular corporation?
The concept of a PBC represents a fresh approach in the corporate law world for businesses aiming to harmonize their profit and purpose. PBC companies typically hold the belief that business can be a force for good, serving both stockholder and society. With the PBC structure, instead of only prioritizing short-term profit maximization, companies may conscientiously consider the impact of their decisions on various stakeholders, including but not limited to the environment, community, social causes, customers, suppliers, etc. PBCs must also enshrine a particular "public benefit" in their Certificate of Incorporation, defined as a positive effect or the reduction of a negative effect on the company's social purpose.
A PBC is otherwise a lot like a typical corporation. It’s taxed the same and its stock may be eligible for qualified small business stock tax treatment, but with a few key differences.
Enhanced Transparency: PBCs are required to have biennial reporting to stockholders on the company's social and environmental performance, measured against specific objectives. While the minimum requirement involves this stockholder report, numerous PBCs opt to exceed expectations by publishing an annual report accessible to the public. It's important to note that these reports exclusively focus on social and environmental performance, and there is no obligation for PBCs to disclose any financial information in these reports.
Enhanced Accountability: PBCs must balance between the financial interests of stockholders and the well-being of those significantly impacted by the corporation's actions, including those entitled to specific benefits. stockholders with holdings exceeding 2% of the company's shares possess the right to take action to uphold the newly defined purpose and the commitment to stakeholders.
Broader Mission: the PBC must move away from a narrow focus solely on maximizing profit to adopting a broader perspective aimed at creating a positive impact on both people and society while still ensuring profitability. Simultaneously, it explicitly eliminates legal liability for prioritizing purpose over profit (specifically addressing the Revlon Duties under Delaware law – a summary of Revlon Duties is a for another day). This legal transformation shifts the duty from a mandate to maximize stockholder value to a mandate to include generating public benefits and operate responsibly and sustainably.
*Please note that this post addresses PBC incorporated under Delaware law, so some terms and provisions may vary depending on the jurisdiction the PBC is incorporated in.
